How to describe grain markets at the movement?
“Schizophrenic,” said Benson Quinn Commodities, adding thatsoybean futures in particular had “traded up and down like a toilet seat”.
And the somewhat-contrasting thinking on prices was evident again in early deals on Monday, when it was seat down for soybean futures for November, which fell by 1.0% to $10.47 a bushel as of 09:25 UK time (03:25 Chicago time).
This, even as best-traded December corn futures gained 0.8% to $3.61 a bushel.
‘Forecast has trended slightly cooler’
How come? Well, of course traders are focused on the Midwest weather outlook, and whether it contains sufficient heat and dryness to damage growing spring crops, such as corn, cotton and soybeans.
“Over the next week, traders will be watching three things – weather, weather and weather,” said Darren Frye at ag advisory group Water Street Solutions.
And the outlook for a forthcoming spell of testing conditions has turned marginally less threatening, at least according to MDA.
“The Midwest corn/soybean belt forecast is wetter in northwest areas on Tuesday,” in the run-up to the high temperature ridge setting in, the weather service said.
And in the six-to-10 day outlook, during the hot spell, “the forecast has trended slightly cooler in the western and northern Midwest”.
However, that is not to say that the weather looks like being benign.
“Hot and dry weather in western Midwest areas will create stress on corn and soybeans later this week,” MDA said.
And in the six-to-10 day outlook, “despite slightly cooler temperatures in the western Midwest mostly hot and dry weather will allow soil moisture to decline, thus increasing stress on corn and soybeans”.
Commodity Weather Group said that temperatures of 90s-100s Fahrenheit were expected in Nebraska, Kansas and Missouri from Wednesday through Saturday, with most other Midwest areas seeing “peak heat” Thursday to Saturday, typically in the 90s.
‘Limit the intensity of the heat’
Nonetheless, “the combination of hottest areas in the far west and dry spots around the Great Lakes should still encompass 20% or less of the Corn Belt that will encounter notable stress,” Commodity Weather Group said.
And looking longer term, to the 16-to-30 day outlook, “while guidance continues to support a broad, warm pattern, showers remain supported as well to limit the intensity of the heat and focus the main dryness concerns on the eastern 25% of the Midwest”.
With soybean investors particularly concerned about conditions next month, a crucial and weather-dependent period for the development of the US crop (with August more important for corn, bringing the sensitive pollination period), the outlook was certainly not so supportive for soybeans.
There continued to be a little disappointment too at US crush data for June, from industry group Nopa, which while at a record for the month of 145.1m bushels “came in just shy of analyst expectations”, Water Street Solutions’ Darren Frye said.
That said, he flagged reasons not to sell soybeans too hard too, given the “uncertainty over August production weather.
“A 2 bushels-per-acre drop in production would cut the domestic carryout in half – putting the pipeline in essentially an ’empty’ situation, or 3% stocks-to-use,” a low stocks-to-use ratio signalling upward pressure on prices.
‘Funds are still too long’
However, another factor mitigating in favour of corn, relative to soybeans, came from a separate area, the hedge fund positioning data from the CFTC regulatory.
This showed speculators maintaining a large net long in Chicago soybean futures and options, of nearly 160,000 lots, down just 8,000 contracts week on week.
“Funds only liquidated a small portion of their long position,” Benson Quinn Commodities said.
“If weather does prove moderate in August, then the funds are still too long assuming trend yield of 46.7 bushels per acre and a 290m bushel 2016-17 carryout,” as expected by the US Department of Agriculture.
‘Take sell pressure off’
In corn, by contrast, the managed money net long dropped by 94,000 lots week on week, the third biggest sell down on record, to 8,700 contracts, meaning a stack of selling pressure has already been taken out of the market.
“Funds are now nominally long,” Benson Quinn Commodities said, adding that, with the CFTC data accurate as of last Tuesday, speculators are “probably short right now”.
“This will take sell pressure off trade.”
‘Short-covering rally down the road’
In Chicago wheat, meanwhile, the managed money net short rose by 12,000 lots week on week to 114,668 contracts – a high on records going back to 2006.
Does this mean that selling pressure is spent, and that speculators will be reluctant to put in more short bets, meaning a waning, at least, in selling pressure?
“The record short fund position should provide some stability to price and a short-covering rally down the road on a headline,” Mr Frye said.
As an extra support to wheat, Egypt’s Gasc over the weekend, at tender, bought wheat at $174.99 a tonne, a little more expensive than the $173.03 a tonne it paid last Tuesday, and indicating a firm cash market.
“Operators have noticed that prices were up compared to the previous tender,” Agritel said.
Hard vs soft
Furthermore, there was the support from corn, with which wheat is competing particularly hard at the moment in pricing terms to get demand from livestock feeders, and erode large wheat inventories in the US and indeed the world.
Chicago soft red winter wheat for September, now the front contract, gained 0.9% to $4.28 ¾ a bushel.
Kansas City hard red winter wheat for September fared even better, up 1.0% at $4.17 ¾ a bushel, and closing a little more of its unusual discount to its lower-protein soft wheat peer.
Indeed, the discount has now narrowed from $0.30 a bushel touched late last month to $0.11 a bushel, amid ideas that producers are delivering higher-spec hard red winter wheat in Chicago, so diverting some supply pressure from Kansas City.
“Deliveries of hard red winter wheat against the Chicago contract are cited as a reason” for the narrowing discount, Benson Quinn Commodities said.
China vs India
In New York, cotton for December traded down 0.1% at 74.19 cents a pound, remaining below the fresh two-year highs set in the last session.
“There are still concerns about dryness in India and the US,” said Tobin Gorey at Commonwealth Bank of Australia.
“But if China’s reserve sales continue see good uptake from mills, the market is unlikely to be short of cotton in the near term.”
That said, the strong results from China’s auction of cotton from its huge state inventories was highlighted last week by the US Department of Agriculture as a positive sign for Chinese demand.
The CFTC data showed managed money raising its net long in cotton futures and options nearly to 50,000 lots, the highest of 2016 but well below historical highs above 80,000 contracts.
(Source – http://www.agrimoney.com/marketreport/am-markets-soy-dips-grains-gain-in-schizophrenic-market–3687.html)